The Federal Reserve’s rate-setting committee raised benchmark rates by a quarter percentage point this afternoon, and – somewhat surprisingly – explicitly put the conditions in place for inaction at upcoming decision dates. At the conclusion of its two-day meeting in Washington, the Federal Open Market Committee unanimously voted to raise the target range for the federal funds rate to 5.00-to-5.25 percent, with no dissents in favour of a smaller or larger move. The increase brings US rates back to levels last reached in August 2007.

In the official statement setting out the decision, policymakers noted “Economic activity expanded at a modest pace in the first quarter,” and highlighted strength in the labour market, saying “Job gains have been robust in recent months, and the unemployment rate has remained low”. They also acknowledged the fact that turmoil in the banking sector is impacting lending activities, saying “Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain”.

And in a surprisingly dovish turn, the statement said “In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals”. In removing the “additional policy firming” language that characterized previous statements, officials appear to have acknowledged a tilting risk landscape, with downside growth uncertainties beginning to rival inflation pressures in determining overall policy settings.

Markets reacted well, with key measures of risk appetite improving in the moments after the release as traders moved to incorporate a higher probability of rate cuts in the latter half of the year. US equities gained, two- and ten-year government bond yields fell, and the dollar ticked lower.

Focus is now shifting to the press conference, where Jerome Powell will almost inevitably find himself stuck between a rock and a hard place: attempting to signal an imminent end to the Fed’s tightening cycle as officials watch for downside risks, while also trying to prevent a wholesale—and potentially dangerous—loosening in financial conditions.